The announcement by the Competitions and Market Authority (CMA) to implement Open Banking is set to transform how data is shared and how banking services are managed by the bank and the customer. This new regime will give consumers a much better understanding of the costs and benefits associated with their bank account and easier access to alternative products.

As with any change in regulation or technology there will be both opportunities and risks presented by Open Banking. There will certainly be areas that financial service providers need to carefully consider in order to capitalise on the opportunity and to safeguard their customers.

As Open Banking becomes a reality in 2018, so does the opportunity to create truly innovative services that can change the way banks interact with customers.

As with any new regime or transformation, the future will write itself as time goes by, but there are certain elements that Open Banking will inevitably influence. These include identity verification, product comparison, better personal financial management, consent management and risk forecasting.

Here’s a look at the potential changes and the opportunities ahead for the banking industry in these areas:

Identity verification – The ease at which customers are able to securely authenticate their identity prior to enabling a third party to initiate a payment, or share transactional data, is seen as essential to defining the quality of the experience in Open Banking.

Providers may seek to use this for competitive advantage, and differentiating their service could acquire customers. The alternative is that providers create an ecosystem that allows for the sharing of authenticated customer identities. If providers can reach an agreement on the sharing of a liability for providing access to a customer’s account, then there are considerable cost savings to be made.

Product comparison – Open Banking’s initial focus is to improve competition in the provision of current accounts and payment initiation; but it is anticipated that comparison services for mortgages, asset finance, unsecured loans, credit cards and savings will quickly follow as organisations capitalise on open data access.

Much depends on gaining the confidence of customers to share transactional data, and on price comparators using this data responsibly to demonstrate the value of products and encourage switching. The future promises an even more competitive product comparison environment.

Better personal financial management – The exchange of transactional data and provision of payment initiation provides a unique opportunity to create more personalised financial services based on an integrated view of an individual’s income and expenditure.

This, augmented with credit behaviour, savings and asset information, can be harnessed through real-time perpetual data analysis to allow providers to create services that help people manage their money more easily.

Consent management – Service providers must define and articulate the value that persuades customers to share their personal information. Those that succeed will find the right balance between creating services that are relevant and personal to make them invaluable – whilst avoiding becoming intrusive, irrelevant or over-bearing.

Those who can balance this will find the right model that offers competitive advantage and customer appeal. Managing consent and ensuring the ‘right-to-be-forgotten’ will instil trust and confidence.

Risk forecasting – The growth in available data provides new opportunities to forecast short and long-term risk.

Providers will be able to better manage their risk portfolio through access to more detailed transactional data. This, aligned to key indicators of macro-economic performance, will enable providers to more accurately forecast risk and responsibly manage their services.

Conclusion – a watershed moment
Open Banking is a watershed moment in the relationship between customers and financial service providers. It creates a unique opportunity for everyone involved in the provision of services to increase relevance and trust by focusing on products that create value and improve the quality of people’s lives – predicated on the intelligent and compliant use of personal data.

Creating relationships that are transparent, honest and fair, and that enable customers to feel confident and secure in the knowledge that their well-being is a priority and their privacy is safeguarded, is the key to creating meaningful, long-term relationships that will revolutionise the way products are consumed.

In the window of opportunity between the announcement of the CMA’s remedies for retail banking and the deadline for implementation, Open Banking mandated organisations should focus their efforts on building an infrastructure that supports change and generates real, measurable value for customers.

Longer term, organisations should be looking to create services that are secure, engaging and personalised, and deliver real value from the intelligent use of personal data.

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